Is My Financial Advisor Trustworthy?

Is your financial planner or advisor on your side? Is your financial advisor- client relationship based on honesty?

To put this to the test, ask your financial planner the very basic financial challenge question, “How should I spend an extra dollar (or realistically, $10,000)?”How they answer will tell you if they are the right advisor for you.

I think only an honest financial planner can answer this question properly. Here is why: If your adviser is focused on investments, the answer will most likely relate to further investments in an RRSP, RESP, TFSA or regular investment account. This may in fact be an appropriate answer, but did they ask the right questions before coming up with this recommendation? Do they know about your non-investment priorities and obligations?

Like most situations, the best answer requires some education. Most important are the questions an adviser asks before coming up with recommendations.

Does your investment adviser understand your debt situation? If you have debt with an interest rate of 6 per cent or more, then you should very likely be paying down that debt first. If your interest rate is more like 3 per cent or 4 per cent, then could you likely earn more than this return by investing elsewhere? Is your debt tax-deductible or could it be restructured this way? What is your philosophy toward carrying debt? These are all questions your adviser should consider.

Moreover, your advisor should inquire about personal life situations. How long has it been since you had a real vacation? If there is no urgent need for the money, would you like to take a trip?Is there a house project that is overdue or a hole in your insurance coverage that is in need of those funds? Could one of your kids or parents or a charity really benefit from this money – and is that something that you are inclined to support?

As you can see, the right answer for you is really dependent on an understanding of your overall financial situation and also your personal goals. To find out if your advisor is on your side, try asking this question and see the advice they come up with for you. If you are not happy with the answer, start looking for a financial planner who will actually understand your needs.